Re-engineering AMR for Customer Service
While cost-saving has long been the tool for justifying automatic meter reading (AMR), the real payoff will come when utilities and vendors realize that AMR's real value is in delivering dramatic improvements in customer service. As utilities evolve into the deregulated world, their ability to grow, and in certain cases survive, will depend on how well they serve their customers. AMR offers the essential tools today for the next level of customer service.
What Is Automatic Meter Reading?
For this discussion, a narrow definition of automatic meter reading is implied. Here, AMR means completely automatic meter reading. To read any meter anywhere, you just push a button. A fixed radio network, telephone system, or power-line carrier automatically brings the reading to the utility office. No meter reader need travel to the field.This definition excludes semi-automatic methods such as walk-by and drive-by meter reading. While these methods increase efficiency, they are not "automatic" because they require that someone travel to the field, and meters are read in groups (routes) rather than individually.
Return on Management vs. Return on Investment
The traditional method used by utilities to evaluate equipment acquisitions is to calculate the return on investment. The cost to purchase, install, operate, and maintain the equipment is compared with the costs of various alternatives. Using the return on investment (ROI) method works fine for pipe, pumps, and transformers because their costs and benefits are known, and the alternatives being compared are similar.But ROI is a poor method if the benefits are qualitative rather than quantitative, and ROI has proven a failure when evaluating investments in information technology. Typewriters produce text faster than personal computers, yet $200 typewriters have become obsolete thanks to $2,000 personal computers. Computers have advantages over typewriters that can't be quantified.
In his book The Business Value of Computers, Paul Strassman states that data processing systems cannot be justified by return on investment. Strassman proposes instead that return on management is the way to evaluate the payback from computers. A well-planned computer system provides timely information which helps management run the business more efficiently. Computers do not pay for themselves by reducing the headcount in accounting. Since AMR is also an information system, its real return should come from the information it delivers, not in the costs it eliminates from the meter reading department.
Customers Will Tell Us What to Do
Other business sectors use marketing data more extensively than do utilities. Consumer product companies are especially hungry for marketing data and use large computer systems simply to gather information about product movement. Case in point: Levi Strauss uses an online computer system to constantly monitor worldwide demand for its products at point-of-sale. Levi managers know instantly what's hot and what's not, and can take swift action, including re-pricing. Based on the real-time sales data, each night Levi adjusts the production schedules at its 19 manufacturing facilities worldwide. Customers benefit because the products they want are in stock. Levi benefits because sales can increase with a smaller investment in inventory. What's more, they have an excellent database for forecasting demand. For example, based on the zip code of any new store location, Levi can tell the store manager exactly which items to stock, detailed by quantity, style, color, and size.The Levi example suggests bow AMR systems can benefit utilities. Like cash registers, meters provide information about customer consumption. Customer data can make utility distribution systems more responsive, with less capital investment. Surges and dips in demand are detected immediately so the supply can be adjusted, or demand can be shifted by pricing. Information collected from individual customers can be analyzed to forecast future needs. Customers get the services they want and the utility operates more profitably.
Market Segmentation, Product Differentiation
Market segmentation is a business technique used by virtually all consumer product companies. They might segment a market by age, income level, gender, life style, or other criteria, then create a unique product for each segment. Each product has a different set of features and its own brand name, packaging, and pricing. All consumer product companies sell differentiated products to market segments; none opts for a one-size-fits-all product strategy.Most utilities are not accustomed to segmenting their market or differentiating their product. Customers might be grouped as residential or commercial/industrial, but that's about the limit of segmentation. The product is presented as one-size-fits-all, with one kilowatt-hour or gallon or cubic foot pretty much like the next.
But utility products are not all alike. Proof that all water is not alike is evidenced by the steady growth of bottled water. In the U.S. today, bottled water is a $5 billion business, while the revenue of all water utilities combined is only $20 billion. Consumers are paying prices for bottled water that are 10,000 times higher than piped water because they perceive differences in the products. My local supermarket carries 39 different brands and sizes of bottled water. A specialty water shop in Amsterdam stocks more than 100 varieties of water from around the world. Similar product differentiation is occurring for electricity, as evidenced by the growing demand for power line surge protectors, uninterruptible power supplies, and back-up generators.
Back when utilities were regulated monopolies, there wasn't much incentive for utilities to identify customer needs and customize products to fit those needs. With deregulation now exposing utilities to competition, they need to view their customers the same way Proctor & Gamble, Anheuser-Busch, and Ford do.
When the telephone utilities were regulated monopolies, the price of a phone call depended only on when and where you called. In the deregulated world, phone companies compete by offering special products to market segments. Phone companies have a deal for users of VISA cards, for American Airlines frequent flyers, another for Harvard alumni, one for people with friends and family, and weekend callers. As water, electric and gas utilities also move toward deregulation there will be a similar trend toward niche marketing.
Segments, Products for Utilities
Here are several examples of how a utility might segment its market, and products or outputs for each segment possible only with AMR:- Market segment: Any major customer.
Product: Custom metering and billing, as requested by the customer. For instance, Exxon has 60 refinery sites along the Gulf of Mexico. This single customer represents one-third of Mississippi Power Company's total revenue. Exxon receives one consolidated bill weekly with a breakdown by refinery. Using AMR, certain meters are read daily and other meters are read weekly, consumption measurements are customized by meter, and all meters are read at the same time of day. - Market segment: Customers with many similar facilities (fast food chains, gas stations, copy shops, school districts, etc.).
Product: Consolidated billing, with details by facility. Meter readings are timed to mesh with the customer's accounting periods. Each bill is a custom report with subtotals and totals as requested by the customer. As an example, Catholic schools in Chicago receive natural gas from an independent supplier and contract with the local gas company for delivery. Meters at each school are read daily at noon by an AMR system, with the pricing determined by the characteristics of the gas delivered during that period. - Market segment: Large industrial users with shiftable loads.
Product: Spot pricing, to respond to any temporary glut or shortage in supply. - Market segment: Users of electric or natural gas powered vehicles.
Product: Day/night rates to shift loads to off-peak hours. - Market segment: High turnover meters (college town units, seasonal rentals, etc.).
Product: Initial/final meter readings are taken immediately upon request. - Market segment: Home health-care patients worried about electrical power outage.
Product: Outage detection, third-party notification. - Market segment: Gas customers in earthquake areas.
Product: Leak detection and notification. - Market segment: Small-bill customers.
Product: Lump-sum prepayment and re-billing as required. The AMR system monitors consumption and triggers the next bill.
Benefits for Utilities
In addition to new information, AMR can save utilities money beyond any labor savings. An AMR system allows utilities to pinpoint the application of discounts to specific customers, thereby minimizing discount dollars conceded. Simultaneous readings throughout the distribution system can locate losses, theft, leaks and wrong-reading meters. Here's one example: The City of Revere, Massachusetts, uses an AMR data logging system to measure consumption through its largest meters accurately. Many of these meters were found to be inaccurate, under-billing large accounts. As a result of this study, Revere is collecting more than $600,000 from just 23 accounts.Barriers to Implementation
Perhaps the greatest barrier to using AMR as a marketing tool is the mind-set of utilities. Most utilities are run by engineers, not marketers. Utilities focus on the product, not on the customer. The asset of the utility is thought to be its plant and equipment, not its customer list. Deregulation and competition will shift the culture from an engineering to a marketing mentality, and it will be a difficult evolution for most utilities.The customer culture is another barrier. Customers have been conditioned to think utilities supply commodity products, and price is the only thing that matters. We need to replace the single generic product idea with the perception of an interesting product line. As Tom Peters preaches, "Perception is all that matters," even if the technical differences between products are small. Advil, Motrin, and generic ibuprofen are all chemically identical-marketing makes them unique. Gallo Winery packages exactly the same fluid in different bottles to sell at different price points. All airlines fly basically the same airplanes. Creating demand for one brand of vodka is the ultimate marketing challenge-by law it has no distinguishing color, taste, or odor. These consumer products all benefit from product differentiation, just like utilities will.
Another barrier to the implementation of AMR can be the utility's billing system. Most billing computers expect meter readings to be submitted in batches on a monthly schedule. The benefits from AMR can be realized only when the AMR system is coupled to a billing system able to accept readings at any time.
The Marketing Action Plan
To benefit from the marketing tools AMR provides, here's a three-step action plan for utilities:- Divide your customers into market segments. To make early headway, begin with the top customers and work down. Each very large customer might be one market segment by itself. Organize customers into segments with common needs which AMR can satisfy.
- Develop differentiated products for each market segment. Identify products or services which would make each market segment eager to buy from you.
- Select and install the AMR technologies which deliver these services.
About the Author: Richard Alexander is an independent consultant, author and publisher, and is especially interested in AMR applications at electric utilities. His firm, Alexander & Associates, is located in Newport Beach, California: Tel. 714-675-4820; Fax. 714-673-5096.
Editor's Note: This article appeared in the September, 1996 issue of AMRA News, published on a regular basis by the Automatic Meter Reading Association, an international organization dedicated to the advancement of automated metering and resource management technologies. AMRA is located in Northbrook, Illinois, and can be contacted at: Tel: 847-480-9628; Fax. 847-480-9282. The article is reprinted in with permission, and with some minor style modifications.